The troubles continue to mount for the The Reserve Primary Fund., the money market fund that “broke the buck” on Sept. 16, 2008 and quickly became a defendant in numerous securities class actions. Today, the SEC announced that it has filed an enforcement action charging the entities and individuals who operate The Reserve Primary Fund “with fraud for failing to provide key material facts to investors and trustees about the fund’s vulnerability as Lehman Brothers Holdings, Inc. sought bankruptcy protection.”
The Reserve Primary Fund “broke the buck” on Sept. 16, 2008, when its net asset value fell below $1.00 per share. The SEC alleges that defendants failed to provide key material information to the Primary Fund’s investors, board of trustees, and ratings agencies after Lehman Brothers filed for bankruptcy protection on September 15. The SEC alleges specificaly that:
The fund, which held $785 million in Lehman-issued securities, became illiquid on that day when the fund was unable to meet investor requests for redemptions. According to the SEC’s complaint, the defendants misrepresented that RMCI would provide the credit support necessary to protect the $1 net asset value of the Primary Fund when, in fact, RMCI had no such intention.